Companies in the South West cut back on hiring in December amid economic uncertainty but were still the most optimistic they have been since last summer, new research has revealed.
Following two months of meagre expansion in employment, the region's private sector firms pared back staffing levels as they faced falling demand for business, the report by NatWest found. However, business leaders' optimism levels lifted as companies planned for investment and hopes of a revival in demand underpinned growth expectations.
The headline NatWest South West PMI Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – stood at 47.5 in December, up from 45.3 in November.
The downturn in South West business activity last month was the third-fastest across the 12 UK regions and the rate of job shedding was the fastest since January 2021. Competition for labour amid skills and candidate shortages, and companies reluctant to replace any leavers due to the current economic climate, were partly blamed for the latest drop in employment.
According to the survey, South West companies reported a fall in new business received for the sixth month running in December. While the rate of contraction eased for the second consecutive month from October's 21-month record, the drop in total new business was "solid", NatWest said. Outstanding levels of business also contracted across the South West during December, but lower levels of work allowed firms to work through existing orders.
The data also revealed a rapid rise in costs for firms during the month, with rises in wages, the cost-of-living crisis and inflation largely attributed to the incline. Despite the increase in average cost burdens across the South West, it remained weaker than that seen at the UK level.
Paul Edwards, chair of the NatWest South West regional board, said: "The overall declining health of the sector reflected the fall in demand as recession fears, inflation and the cost-of-living crisis dominated the economic environment for most part of the second-half of the year.
"The outlook for 2023 suggests ongoing challenging conditions across the private sector, but perhaps less so than previously expected, with the month-on-month improvement in business confidence giving at least one sign of slightly more optimism."
